Chancellor Presses Ahead with Controversial Motability Changes
Chancellor Rachel Reeves is poised to proceed with scrapping approximately £300 million in tax breaks for the Motability scheme, a programme that helps disabled people lease vehicles using their welfare benefits. This decision is anticipated to raise concerns among some Labour MPs and disability advocacy groups.
Specific Tax Reliefs Facing the Axe
In the upcoming budget, Reeves is expected to target specific tax reliefs currently benefiting the Motability scheme. These measures include imposing an insurance premium tax, which would directly increase the cost of leasing a car for participants. Additionally, the government plans to charge VAT on advance payments made for higher-value vehicles within the scheme.
However, the Treasury has reportedly stepped back from a more drastic option: removing the VAT exemption on sales of used Motability vehicles. Officials were concerned that this particular change could have potentially led to the collapse of the entire scheme. A government source indicated that earlier reports of aiming for £1 billion in savings from this policy were inaccurate, stating this was never a realistic target.
Context and Wider Scheme Changes
The Motability scheme enables over 800,000 disabled people to use their Personal Independence Payment (PIP) benefits to lease a new car for a three-year period. The scheme is operated by a private company under the oversight of a charitable foundation.
These tax changes come on top of a recent decision by Motability itself to remove premium brands like BMW and Mercedes from eligibility. These luxury vehicles represent about 40,000, or roughly 5%, of the total cars in the scheme, often accessed by a small number of claimants who make an advance payment to upgrade.
The programme has faced criticism from some right-wing commentators and politicians, who often mistakenly characterise the vehicles as "free cars." In reality, participants pay for the leases using their existing disability benefits.
Political Reactions and Wider Budget Plans
Disability organisations and certain Labour backbenchers have already expressed alarm that any changes making car ownership more expensive will disproportionately affect disabled people. Meanwhile, the Chancellor is also preparing to announce a crackdown on benefit fraud and error alongside these Motability reforms.
In a significant parallel move, Reeves is set to end the two-child limit on Universal Credit at an estimated cost of £3 billion. She has publicly stated her intention to pursue wider welfare reform, commenting last month that the system "can't be left untouched." However, these attempted reforms risk sparking a backbench revolt from Labour MPs already concerned about the party's polling numbers and the popularity of both Keir Starmer and Reeves herself.
